No bubble trouble in house price rise: RBA

Property prices are showing signs of life but there will be no repeat of a 1990s-style housing boom, a senior Reserve Bank of Australia (RBA) analyst says.

A growing population, the current low rate of new home construction and a tight rental market have created the right circumstances for an uptick in housing demand, RBA head of economic analysis Jonathan Kearns said on Tuesday.

‘‘We are not seeing declines in income growth or a significant increase in unemployment, so the strength in earnings and incomes for households is still going to be quite reasonable and certainly sufficient to support an increase in housing construction,’’ Mr Kearns told an Australian Business Economists (ABE) lunch in Sydney.

‘‘We are already seeing some signs of that occurring - we do have low interest rates, we have rising rents, (and) rental yields picking up a little bit.

‘‘With low interest rates and the demand there, it would seem like the options are for supply to pick up and therefore construction to increase at a moderate rate.

‘‘It doesn’t mean you are going to see a strong increase in the housing cycle in the way that you might have in previous decades.’’

Mr Kearns said property prices would not spike to the high levels of the late 1990s and early 2000s because buyers had less appetite for debt and prices were already at a high level relative to income, leaving little room for large increases.

‘‘Overall it looks likely that dwelling investment will pick up at a relatively moderate rate in the medium term,’’ he said.

The rate and strength of the improvement remained unclear but would be a critical factor for the overall economy.

Ray White real estate group deputy chairman Sam White, who also spoke at the ABE function, said his group recorded its best month since the GFC in October, with sales of $2.6 billion around Australia.

The RBA has cut the cash rate by 1.5 percentage points to 3.25 per cent in the past year, and Mr White said he expected the cumulative effects of those cuts to flow through the market.

‘‘We will see more people start to be able to commit to making decisions to change homes, so we look forward to that over the coming 12 months,’’ he said.

Australian Bureau of Statistics figures released on Monday showed the number of owner-occupied home loans approved in September rose 0.9 per cent to 46,395 - the highest level since January, and it followed a 2.1 per cent rise in August.

However there was also a 6.3 per cent fall in construction of dwellings.

Mr Kearns said an improvement in housing investment could partially offset the expected decline in resource investment in coming years, as the current mining and gas infrastructure investment pipeline is expended.

AAP

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